Parliament mulls lifeline for debt-riddled South Africans

The bill’s opponents warn that providing debt relief as proposed will entail moral hazard as it would foster a culture of nonpayment and drive up the cost of credit.
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Parliament’s trade and industry committee is in the final stages of processing a draft bill providing debt relief for heavily indebted consumers which remains substantially unchanged‚ despite strong opposition from the banking sector.

The committee is expected to conclude its deliberations on the draft National Credit Amendment Bill once Parliament resumes work after the winter recess at the end of July.

The bill proposes giving the National Consumer Tribunal the power to extinguish debt under certain circumstances. The targeted group for the envisaged debt relief would be individuals earning a gross monthly income of not more than R7‚500‚ who have no readily realisable assets (excluding exempted items mentioned in the bill)‚ are not subject to debt review and have debt of less than R50‚000 excluding interest and charges.

The minister can review the income and asset thresholds from time to time by means of a notice in the government gazette.

The banking sector is not in favour of the proposed bill‚ which it says will harm lower-income groups because credit providers would limit the extension of credit to them in a bid to limit their risk. Banks say they have their own debt relief measures in place.

The bill’s opponents warn that providing debt relief as proposed will entail moral hazard as it would foster a culture of nonpayment and drive up the cost of credit.

The committee has published specific clauses of the bill for additional public comment. These deal with the powers of the court to reduce interest rates‚ charges and fees to zero for a period of five years; consultation between the minister of trade and industry and the minister of finance on funding for financial literacy and capability programmes by means of the imposition of a levy on financial service providers; and adjustments to income and debt thresholds.

Democratic Alliance spokesman on trade and industry Dean Macpherson said the DA was very opposed to the proposal to empower the minister to review income and asset thresholds.

“We are absolutely firm that this should go through Parliament. It is a committee bill and therefore the committee needs to take responsibility for it. It can’t outsource its responsibility to the minister‚” he said.

The DA is also opposed to the proposal in the bill which would make the National Credit Regulator (NCR) a de facto debt counselor as well as being a regulator‚ which it regards as a conflict of interest.

Macpherson said that the answer to over-indebtedness lay in making debt counseling and debt services available to lower income groups rather than in providing debt relief. He was worried that the bill could open up the possibility of 9-million people applying for debt relief which the NCR would never be able to handle.

“I don’t think the bill has been thought through practically and logically.”

Extinguishing debt would increase the cost of credit to everyone and restrict access to credit as credit providers impose tighter conditions on credit extension.

“This is going to be very problematic for poor people at the end of the day‚” Macpherson said.